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Negotiating Line for the Consumer Rights Directive on the Concept of Assessability for Unfairness in Consumer Contracts
BIS is seeking views to inform its negotiating position on the Consumer Rights Directive as to whether contingent or ancillary charges should be assessed for unfairness under the unfair contract terms provisions.
Background to Call for Evidence
The Supreme Court judgement in the OFT v Abbey National plc case has led to uncertainty as to how UK legislation on unfair terms in consumer contracts applies to charges that are “contingent”, or “ancillary” to the core of the contract. The EU Consumer Rights Directive is currently being negotiated, and will replace four existing Directives including the Unfair Contract Terms Directive, which forms the basis of the UK law on unfair contract terms. The Commission or Members of the European Parliament may seek to address the issue when the proposal comes up for debate in the Autumn. The UK Government therefore needs a negotiating line to take for subsequent discussions in the Council of Ministers as to whether contingent or ancillary charges should be assessed for unfairness.
Purpose of Call for Evidence
This Call for Evidence invites views on a number of specific issues to help inform the development of the UK Government’s negotiating position in advance of discussions in the EU’s Council of Ministers later this year.
Download the consultation
Read our response in full here:
Executive Summary
The decision of the Supreme Court judgement in the OFT v Abbey National plc case (“the Test Case”) in November 2009 was a disappointing decision for the members of Legal Beagles and for consumers generally. However, whether or not we agree with that decision, it is our view that the position in respect of ancillary or contingent bank charges and the application of Regulation 6(2) of the Unfair Terms in Consumer Contracts 1999 (“UTCCRs”) has been settled by the Supreme Court in the Test Case. It is our view that the applicability of that decision to other ancillary or contingent charges will depend entirely upon an interpretive construction of the product or service in question, the legal rules and the industry practice in relation to that product or service (including pricing structures), and the specific terms of any contracts used.
In light of this, we agree with BIS that there is uncertainty as to how the current UK legislation on unfair terms in consumer contracts applies to charges that are “contingent” or “ancillary” to the core of the contract in respect of other products both within the financial services industry and in other unrelated industries. We express particular concern that such uncertainty makes it virtually impossible for consumers – and those advising them – to know what protection the current legislation affords to consumers. This is compounded by the fact that the pricing structure of any goods or service, whilst important to the seller or supplier and an important factor of the Supreme Court judgment1,is well outside the scope of reasonable consumer enquiry. Indeed, it is our view that there has been a lack of clarity from the regulators as to the scope and extent of the applicability of the Test Case in other areas. Whilst we welcome the potential for substantial review of the legislation in light of the upcoming Consumer Rights Directive, we note that there is a substantial vacuum in respect of current consumer protection and current regulatory control within the area of contingent or ancillary charging.
Although this response sets out to answer the questions raised within the Call for Evidence, we believe that the issues involved go wider than the specific ambit of the consultation document. In particular, we have concerns at the way the Supreme Court Judgment in the Test Case has been summarised and explained within the consultation paper, and we address those concerns within the main body of this response. As will be seen, we are of the view that there is still scope for the applicability of Regulation 5(1) of the UTCCRs in respect of current and historic bank charges, as highlighted by the Supreme Court decision. In the Annexe to this response we set out our views as to how Regulation 5(1) of the UTCCRs could be used in their current form to control the level and extent of contingent or ancillary charges. It is our view that the issue of current and historic bank charges is far from resolved, regardless of any legislative changes brought about by the Consumer Rights Directive.
Moving forward, we fully support the commitment in the Government’s Coalition Agreement to “introduce stronger consumer protections, including measures to end unfair bank and financial transaction charges.” We agree that it is highly desirable to tighten the drafting of the proposed Directive to make the policy intention clearer so as to allow for the effective assessment and control of contingent or ancillary charges, particularly in respect to the “price/quality ratio” which was the focus of the Supreme Court decision. It is essential, in our view, to allow for the control of the “price/quality ratio” of contingent or ancillary charges because they are not subject to normal market forces or competition, as consumers cannot make an informed choice on the cost of contingent or ancillary charges which are impossible for them to calculate, and which they do not intend to incur. In this respect we would echo the words of Lady Hale at paragraph 93 of the Supreme Court judgment:
“Or is the real problem that we do not have a real choice because the suppliers all offer much the same product and do not compete on some of their terms? This is the situation here.”
The decision of the Supreme Court judgement in the OFT v Abbey National plc case (“the Test Case”) in November 2009 was a disappointing decision for the members of Legal Beagles and for consumers generally. However, whether or not we agree with that decision, it is our view that the position in respect of ancillary or contingent bank charges and the application of Regulation 6(2) of the Unfair Terms in Consumer Contracts 1999 (“UTCCRs”) has been settled by the Supreme Court in the Test Case. It is our view that the applicability of that decision to other ancillary or contingent charges will depend entirely upon an interpretive construction of the product or service in question, the legal rules and the industry practice in relation to that product or service (including pricing structures), and the specific terms of any contracts used.
In light of this, we agree with BIS that there is uncertainty as to how the current UK legislation on unfair terms in consumer contracts applies to charges that are “contingent” or “ancillary” to the core of the contract in respect of other products both within the financial services industry and in other unrelated industries. We express particular concern that such uncertainty makes it virtually impossible for consumers – and those advising them – to know what protection the current legislation affords to consumers. This is compounded by the fact that the pricing structure of any goods or service, whilst important to the seller or supplier and an important factor of the Supreme Court judgment1,is well outside the scope of reasonable consumer enquiry. Indeed, it is our view that there has been a lack of clarity from the regulators as to the scope and extent of the applicability of the Test Case in other areas. Whilst we welcome the potential for substantial review of the legislation in light of the upcoming Consumer Rights Directive, we note that there is a substantial vacuum in respect of current consumer protection and current regulatory control within the area of contingent or ancillary charging.
Although this response sets out to answer the questions raised within the Call for Evidence, we believe that the issues involved go wider than the specific ambit of the consultation document. In particular, we have concerns at the way the Supreme Court Judgment in the Test Case has been summarised and explained within the consultation paper, and we address those concerns within the main body of this response. As will be seen, we are of the view that there is still scope for the applicability of Regulation 5(1) of the UTCCRs in respect of current and historic bank charges, as highlighted by the Supreme Court decision. In the Annexe to this response we set out our views as to how Regulation 5(1) of the UTCCRs could be used in their current form to control the level and extent of contingent or ancillary charges. It is our view that the issue of current and historic bank charges is far from resolved, regardless of any legislative changes brought about by the Consumer Rights Directive.
Moving forward, we fully support the commitment in the Government’s Coalition Agreement to “introduce stronger consumer protections, including measures to end unfair bank and financial transaction charges.” We agree that it is highly desirable to tighten the drafting of the proposed Directive to make the policy intention clearer so as to allow for the effective assessment and control of contingent or ancillary charges, particularly in respect to the “price/quality ratio” which was the focus of the Supreme Court decision. It is essential, in our view, to allow for the control of the “price/quality ratio” of contingent or ancillary charges because they are not subject to normal market forces or competition, as consumers cannot make an informed choice on the cost of contingent or ancillary charges which are impossible for them to calculate, and which they do not intend to incur. In this respect we would echo the words of Lady Hale at paragraph 93 of the Supreme Court judgment:
“Or is the real problem that we do not have a real choice because the suppliers all offer much the same product and do not compete on some of their terms? This is the situation here.”
We don't always get time/inclination to respond to all consultations but this one we felt was really quite important.
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